Ms. Ginger is the CEO of Jar Inc., an event-planning CCPC in Canada. Her husband, Mr....
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Ms. Ginger is the CEO of Jar Inc., an event-planning CCPC in Canada. Her husband, Mr. Rolo, has a lot of expertise in this business and would like to become involved in Jar Inc. Rolo has saved up money from restoring antique cars and will invest 20,000 of common shares in Rolo Inc. Ms. Ginger will transfer all the assets of the business using S85(1) and will pay Ms. Ginger for the transfer of all the assets by assuming all the liabilities and issuing a loan of the maximum amount as well as preferred shares for the balance. Ms. Ginger wants to defer all possible capital gains she will have to pay while maximizing the non-share consideration she will get in return. Assets Cash The Balance Sheet of Ginger Inc. as of December 31, 2019: Accounts Receivable Book Value Fair Market Value 50,000 50,000 103,000 87,000 Prepaid Insurance 33,000 33,000 Shares of Public Company 48,000 10,000 Shares of a CCPC 150,000 325,000 Inventory 76,000 84,000 Land 400,000 430,000 Building (Note 5) 100,000 45,000 Equipment (Note 5) 40,000 75,000 Goodwill 0 100,000 TOTAL ASSETS 800,000 Liabilities Current Liabilities 190,000 Bank Loan 70,000 TOTAL LIABILITIES 260,000 Notes: (1) Ms. Ginger has never used her Lifetime Capital Gain Deduction. (2) The book value of the land is the original cost. (3) Half of the value of land was used for speculative purposes and held as inventory. (4) Jar Inc. does not have a balance in its General Rate Income Pool (GRIP) account. (5) The Tax Costs associated with the depreciable assets are as follows: Building Equipment Required: Original Cost 200,000 60,000 UCC 55,000 60,000 (A) Indicate which assets cannot and should not be transferred under $85(1). Provide an explanation for each item on the Balance Sheet. (B) Discuss all the tax consequences under $85(1) for all assets that can and will be rolled over. One of Ginger's ex boyfriends from high school Snake boy, now a CPA, DMed her to catch up. The conversation led to the topic of tax in which Ginger proceeded to tell Snake boy about the S85 rollover she wants to perform. He then told her about a better idea he had in mind that would involve an income splitting plan. He told her that common shares can be issued to Rolo, her husband, who is in a lower tax bracket. Ginger can receive consideration for the assets being transferred equal to the consideration in her original S85 plan with the addition of common shares yielding a Fair Market Value of $87,999 without any preferred shares. (C) Taking into consideration Snake boy's advice, determine the new tax consequences to Ms. Ginger that result from the transfer of the business assets to Jar Inc. Include any amount to Ms. Ginger's income and PUC of the preferred shares. (D) Determine the tax consequences to Ms. Ginger if Jar Inc. redeems her preferred shares for $170,000 immediately after taking advice from Snake boy. Ms. Ginger is the CEO of Jar Inc., an event-planning CCPC in Canada. Her husband, Mr. Rolo, has a lot of expertise in this business and would like to become involved in Jar Inc. Rolo has saved up money from restoring antique cars and will invest 20,000 of common shares in Rolo Inc. Ms. Ginger will transfer all the assets of the business using S85(1) and will pay Ms. Ginger for the transfer of all the assets by assuming all the liabilities and issuing a loan of the maximum amount as well as preferred shares for the balance. Ms. Ginger wants to defer all possible capital gains she will have to pay while maximizing the non-share consideration she will get in return. Assets Cash The Balance Sheet of Ginger Inc. as of December 31, 2019: Accounts Receivable Book Value Fair Market Value 50,000 50,000 103,000 87,000 Prepaid Insurance 33,000 33,000 Shares of Public Company 48,000 10,000 Shares of a CCPC 150,000 325,000 Inventory 76,000 84,000 Land 400,000 430,000 Building (Note 5) 100,000 45,000 Equipment (Note 5) 40,000 75,000 Goodwill 0 100,000 TOTAL ASSETS 800,000 Liabilities Current Liabilities 190,000 Bank Loan 70,000 TOTAL LIABILITIES 260,000 Notes: (1) Ms. Ginger has never used her Lifetime Capital Gain Deduction. (2) The book value of the land is the original cost. (3) Half of the value of land was used for speculative purposes and held as inventory. (4) Jar Inc. does not have a balance in its General Rate Income Pool (GRIP) account. (5) The Tax Costs associated with the depreciable assets are as follows: Building Equipment Required: Original Cost 200,000 60,000 UCC 55,000 60,000 (A) Indicate which assets cannot and should not be transferred under $85(1). Provide an explanation for each item on the Balance Sheet. (B) Discuss all the tax consequences under $85(1) for all assets that can and will be rolled over. One of Ginger's ex boyfriends from high school Snake boy, now a CPA, DMed her to catch up. The conversation led to the topic of tax in which Ginger proceeded to tell Snake boy about the S85 rollover she wants to perform. He then told her about a better idea he had in mind that would involve an income splitting plan. He told her that common shares can be issued to Rolo, her husband, who is in a lower tax bracket. Ginger can receive consideration for the assets being transferred equal to the consideration in her original S85 plan with the addition of common shares yielding a Fair Market Value of $87,999 without any preferred shares. (C) Taking into consideration Snake boy's advice, determine the new tax consequences to Ms. Ginger that result from the transfer of the business assets to Jar Inc. Include any amount to Ms. Ginger's income and PUC of the preferred shares. (D) Determine the tax consequences to Ms. Ginger if Jar Inc. redeems her preferred shares for $170,000 immediately after taking advice from Snake boy.
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Accounting Principles Volume 2
ISBN: 978-1119502555
8th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak
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